Mr. Boylan continued, 'Revenues of our Pipeline Inspection segment increased from $70.4 million during the three months ended June 30, 2018 to $104.0 million during the three months ended June 30, 2019, an increase of 48%. Gross margins in this segment increased from $7.9 million during the three months ended June 30, 2018 to $11.4 million during the three months ended June 30, 2019, an increase of 45%.'

'Revenues of our Pipeline & Process Services segment increased from $3.1 million during the three months ended June 30, 2018 to $4.4 million during the three months ended June 30, 2019, an increase of 42%. Revenues of this segment benefitted from several large projects that were scheduled to begin in the first quarter, but were delayed by adverse weather. Gross margins in this segment increased from $1.0 million during the three months ended June 30, 2018 to $1.4 million during the three months ended June 30, 2019, an increase of 37%.'

'Revenues of our Water Services segment decreased from $3.0 million during the three months ended June 30, 2018 to $2.7 million during the three months ended June 30, 2019, a decrease of 11%. The decrease in revenues was due to slightly lower volumes, a planned reduction on pipeline transport fees, and lower crude oil prices on our oil sales.'

'Our sponsor, Cypress Energy Holdings, LLC ('CEH'), completed two acquisitions in the second half of 2018. CEH continues to make progress with both of these acquisitions and currently intends to offer them to the Partnership once it has accomplished certain developmental goals. These acquisitions would move us into several new pipeline services including water treatment, in-line inspection ('ILI'), equipment rental, and offshore pipeline process services. We remain excited about entering the ILI industry with next-generation high resolution MFL ILI technology capable of helping pipeline owners and operators better manage the integrity of their assets in both the energy and municipal water industries.'

Mr. Boylan further stated, 'The long-term increasing demand for pipeline inspection, integrity services, and water solutions remains strong due to our nation's aging pipeline infrastructure as well as growing production, and we believe we continue to be well-positioned to capitalize on the opportunities. Our ownership interests continue to remain fully aligned with our unitholders, as our General Partner and insiders collectively own 64% of our common units and an affiliate of our General Partner owns 100% of our preferred units or cumulatively 76% of our total common and preferred units.

Second Quarter:

Revenue of $111.1 million for the three months ended June 30, 2019, compared with $76.5 million for the three months ended June 30, 2018, representing a 45% increase.

Gross margin of $14.8 million for the three months ended June 30, 2019, compared to $10.9 million for the three months ended June 30, 2018, representing a 35% increase. The gross margin percentage was 13.3% for the three months ended June 30, 2019 compared to 14.3% for the three months ended June 30, 2018.

Net income of $5.6 million for the three months ended June 30, 2019, compared to $3.6 million for the three months ended June 30, 2018, representing a 59% increase. Net income included gains on asset sales of $1.6 million for the three months ended June 30, 2018.

Net income attributable to common unitholders of $4.3 million for the three months ended June 30, 2019, compared to $3.0 million for the three months ended June 30, 2018 (after giving effect to $1.0 million of net income attributable to preferred unitholders for each of the three months ended June 30, 2019 and 2018 related to preferred units that were issued in May 2018), representing a 43% increase. Net income attributable to common unitholders included gains on asset sales of $1.6 million for the three months ended June 30, 2018.

Adjusted EBITDA of $9.2 million for the three months ended June 30, 2019 (including noncontrolling interests and amounts attributable to our general partner), compared to $5.9 million for the three months ended June 30, 2018 (including noncontrolling interests and amounts attributable to our general partner), representing a 55% increase.

Adjusted EBITDA attributable to limited partners of $8.7 million for the three months ended June 30, 2019, compared to $5.6 million for the three months ended June 30, 2018, representing a 56% increase.

Distributable Cash Flow of $5.2 million for the three months ended June 30, 2019, compared to $3.1 million for the three months ended June 30, 2018, representing a 68% increase. Distributable Cash Flow for the three months ended June 30, 2019 was reduced by $1.0 million of distributions on preferred equity.

A net debt (debt, including finance leases, net of cash and cash equivalents) leverage ratio of 2.85x, a credit facility covenant leverage ratio of 3.1x, and a credit facility interest coverage ratio of 5.5x, on June 30, 2019.

Year-To-Date:

Revenue of $201.5 million for the six months ended June 30, 2019, compared with $141.3 million for the six months ended June 30, 2018, representing a 43% increase. This increase was due to increased customer activity, primarily in our Pipeline Inspection segment.

Net income of $7.0 million for the six months ended June 30, 2019, compared with $4.5 million for the six months ended June 30, 2018, representing a 56% increase. Net income included gains on asset sales of $3.3 million for the six months ended June 30, 2018.

Net income attributable to common unitholders of $4.9 million for the six months ended June 30, 2019, compared with $3.8 million for the six months ended June 30, 2018, representing a 30% increase. Net income attributable to common unitholders included gains on asset sales of $3.3 million for the six months ended June 30, 2018.

Adjusted EBITDA of $13.6 million for the six months ended June 30, 2019 (including noncontrolling interests), compared with $9.1 million for the six months ended June 30, 2018, representing a 49% increase.

Adjusted EBITDA attributable to limited partners of $13.3 million for the six months ended June 30, 2019, compared with $8.5 million for the six months ended June 30, 2018, representing a 56% increase.

Distributable Cash Flow of $7.5 million for the six months ended June 30, 2019, compared with $4.1 million for the six months ended June 30, 2018, representing an 86% increase.

We deployed an average of 1,673 inspectors per week for the second quarter of 2019 compared to 1,188 inspectors per week in the second quarter of 2018, representing a 41% increase.

We disposed 3.5 million barrels of saltwater at an average revenue per barrel of $0.77 during the second quarter of 2019, compared with the disposal of 3.6 million barrels of saltwater at an average revenue per barrel of $0.85 during the second quarter of 2018.

Maintenance capital expenditures for the second quarter of 2019 and 2018 were $0.1 million, reflecting the minimal maintenance capital expenditures necessary for the operations of our businesses.

Our expansion capital expenditures during the first six months of 2019 totaled $0.9 million. The expansion capital expenditures included the purchase of equipment to support our nondestructive examination business and costs associated with a new software system for payroll and human resources management that we are in the process of implementing.

Looking forward:

We continue to pursue new customers and new projects as they are announced and to renew existing contracts. During the second quarter of 2019, our Pipeline Inspection segment set a new inspector headcount record in its sixteen-year history.

During the second quarter of 2019, 95% of total saltwater disposal volumes came from produced water, and piped water represented 45% of total water volumes. We have significant operating leverage with our unused capacity, cost structure and minimal maintenance capital expenditure requirements should drilling activity and water volumes increase.

LIBOR interest rates remained relatively unchanged over the last quarter but have risen by about 31 basis points compared to this time last year. However, our outstanding borrowings were significantly reduced as a result of our preferred equity offering and debt refinancing in May 2018. The interest rate on our borrowings ranged between 5.90% and 6.02% for the six months ended June 30, 2019.

Our relationship with PG&E remains strong. We have continued to provide services to PG&E after their bankruptcy filing and have been receiving prompt payment for such services. The bankruptcy court (the 'Court') granted a motion authorizing PG&E to pay certain pre-petition claims to certain key suppliers, including 'operational integrity suppliers.' PG&E has advised us that we have been approved to receive a payment under the operational integrity supplier order. Details regarding the amount of such award and associated release terms have not yet been finalized. The Court also authorized PG&E to pay pre-petition claims to certain suppliers that have filed or could file liens on PG&E's assets. We filed and perfected liens in the counties in which we performed services that are subject to our pre-petition receivables. We are working with PG&E to ensure they have all the required information to support our liens as they work through their payment approval process. Collecting the pre-petition accounts receivable would substantially improve our cash position and net debt leverage ratio.

CELP will file its quarterly report on Form 10-Q for the period ended June 30, 2019 with the Securities and Exchange Commission on August 14, 2019. CELP will also post a copy of the Form 10-Q on its website at www.cypressenergy.com.

Non-GAAP Measures:

Cypress defines Adjusted EBITDA as net income, plus interest expense, depreciation, amortization and accretion expenses, income tax expenses, impairments, non-cash allocated expenses, and equity-based compensation, less certain other unusual or non-recurring items. Cypress defines Adjusted EBITDA attributable to limited partners as net income attributable to limited partners, plus interest expense attributable to limited partners, depreciation, amortization and accretion attributable to limited partners, impairments attributable to limited partners, income tax expense attributable to limited partners, and equity-based compensation attributable to limited partners, less certain other unusual or non-recurring items attributable to limited partners. Cypress defines Distributable Cash Flow as Adjusted EBITDA attributable to limited partners less cash interest paid, cash income taxes paid, maintenance capital expenditures, and cash distributions on preferred equity. These are supplemental, non-GAAP financial measures used by management and by external users of our financial statements, such as investors and commercial banks, to assess our operating performance as compared to those of other companies in the midstream sector, without regard to financing methods, historical cost basis or capital structure; the ability of our assets to generate sufficient cash flow to make distributions to our unitholders; our ability to incur and service debt and fund capital expenditures; the viability of acquisitions and other capital expenditure projects; and the returns on investment of various investment opportunities. The GAAP measures most directly comparable to Adjusted EBITDA, Adjusted EBITDA attributable to limited partners, and Distributable Cash Flow are net income and cash flow from operating activities, respectively. These non-GAAP measures should not be considered as alternatives to the most directly comparable GAAP financial measure. Each of these non-GAAP financial measures exclude some, but not all, items that affect the most directly comparable GAAP financial measure. Adjusted EBITDA, Adjusted EBITDA attributable to limited partners and Distributable Cash Flow should not be considered an alternative to net income, income before income taxes, net income attributable to limited partners, cash flows from operating activities, or any other measure of financial performance calculated in accordance with GAAP as those items are used to measure operating performance, liquidity, or the ability to service debt obligations. Cypress believes that the presentation of Adjusted EBITDA, Adjusted EBITDA attributable to limited partners and Distributable Cash Flow will provide useful information to investors in assessing our financial condition and results of operations. Cypress uses Adjusted EBITDA, Adjusted EBITDA attributable to limited partners and Distributable Cash Flow as a supplemental financial measure to both manage our business and assess the cash flows generated by our assets (prior to the establishment of any retained cash reserves by the general partner) to fund the cash distributions we expect to pay to unitholders, to evaluate our success in providing a cash return on investment, and whether or not the Partnership is generating cash flow at a level that can sustain or support an increase in its quarterly distribution rates and to determine the yield of our units, which is a quantitative standard used throughout the investment community with respect to publicly-traded partnerships, as the value of a unit is generally determined by a unit's yield (which in turn is based on the amount of cash distributions the entity pays to a unitholder). Because Adjusted EBITDA, Adjusted EBITDA attributable to limited partners and Distributable Cash Flow may be defined differently by other companies in our industry, our definitions of Adjusted EBITDA, Adjusted EBITDA attributable to limited partners and Distributable Cash Flow may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. Reconciliations of (i) Net Income to Adjusted EBITDA and Distributable Cash Flow, (ii) Net Income attributable to limited partners to Adjusted EBITDA attributable to limited partners and Distributable Cash Flow and (iii) Net Cash Provided by (Used In) Operating Activities to Adjusted EBITDA and Distributable Cash Flow are provided below.

This press release includes 'forward-looking statements.' All statements, other than statements of historical facts included or incorporated herein, may constitute forward-looking statements. Actual results could vary significantly from those expressed or implied in such statements and are subject to a number of risks and uncertainties. While CELP believes its expectations, as reflected in the forward-looking statements, are reasonable, CELP can give no assurance that such expectations will prove to be correct. The forward-looking statements involve risks and uncertainties that affect operations, financial performance, and other factors as discussed in filings with the Securities and Exchange Commission. Other factors that could impact any forward-looking statements are those risks described in CELP's Annual Report filed on Form 10-K and other public filings. You are urged to carefully review and consider the cautionary statements and other disclosures made in those filings, specifically those under the heading 'Risk Factors.' CELP undertakes no obligation to publicly update or revise any forward-looking statements except as required by law.

About Cypress Energy Partners, L.P.

Cypress Energy Partners, L.P. is a master limited partnership that provides essential midstream services, including pipeline inspection, integrity, and hydrostatic testing services to various energy companies and their vendors throughout the U.S. and Canada. Cypress also provides saltwater disposal and environmental services to upstream energy companies and their vendors in North Dakota in the Bakken region of the Williston Basin. In all of these business segments, Cypress works closely with its customers to help them comply with increasingly complex and strict environmental and safety rules and regulations and reduce their operating costs. Cypress is headquartered in Tulsa, Oklahoma.

CYPRESS ENERGY PARTNERS, L.P.

Unaudited Condensed Consolidated Balance Sheets

As of June 30, 2019 and December 31, 2018

(in thousands)

June 30,

December 31,

2019

2018

ASSETS

Current assets:

Cash and cash equivalents

$

5,770

$

15,380

Trade accounts receivable, net

74,388

48,789

Prepaid expenses and other

1,002

1,396

Total current assets

81,160

65,565

Property and equipment:

Property and equipment, at cost

24,584

23,988

Less: Accumulated depreciation

12,479

11,266

Total property and equipment, net

12,105

12,722

Intangible assets, net

21,411

22,759

Goodwill

50,346

50,294

Finance lease right-of-use assets, net

595

-

Operating lease right-of-use assets

3,198

-

Debt issuance costs, net

1,000

1,260

Other assets

470

253

Total assets

$

170,285

$

152,853

LIABILITIES AND OWNERS' EQUITY

Current liabilities:

Accounts payable

$

6,380

$

4,848

Accounts payable - affiliates

4,514

4,060

Accrued payroll and other

16,721

12,276

Income taxes payable

484

737

Finance lease obligations

158

90

Operating lease obligations

511

-

Total current liabilities

28,768

22,011

Long-term debt

83,929

76,129

Finance lease obligations

376

248

Operating lease obligations

2,675

-

Other noncurrent liabilities

184

178

Total liabilities

115,932

98,566

Owners' equity:

Partners' capital:

Common units (12,053 and 11,947 units outstanding at

June 30, 2019 and December 31, 2018, respectively)

34,820

34,677

Preferred units (5,769 units outstanding at June 30, 2019 and December 31, 2018)

44,291

44,291

General partner

(25,876

)

(25,876

)

Accumulated other comprehensive loss

(2,549

)

(2,414

)

Total partners' capital

50,686

50,678

Noncontrolling interests

3,667

3,609

Total owners' equity

54,353

54,287

Total liabilities and owners' equity

$

170,285

$

152,853

CYPRESS ENERGY PARTNERS, L.P.

Unaudited Condensed Consolidated Statements of Operations

For the Three and Six Months Ended June 30, 2019 and 2018

(in thousands, except per unit data)

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

Revenue

$

111,091

$

76,468

$

201,467

$

141,294

Costs of services

96,284

65,525

176,637

122,222

Gross margin

14,807

10,943

24,830

19,072

Operating costs and expense:

General and administrative

6,158

5,822

12,389

11,277

Depreciation, amortization and accretion

1,109

1,110

2,213

2,244

Gain on asset disposals, net

(2

)

(1,606

)

(23

)

(3,315

)

Operating income

7,542

5,617

10,251

8,866

Other (expense) income:

Interest expense, net

(1,415

)

(1,668

)

(2,726

)

(3,624

)

Debt issuance cost write-off

-

(114

)

-

(114

)

Foreign currency gains (losses)

84

(117

)

185

(451

)

Other, net

50

125

138

207

Net income before income tax expense

6,261

3,843

7,848

4,884

Income tax expense

618

287

824

368

Net income

5,643

3,556

7,024

4,516

Net income attributable to noncontrolling interests

277

149

58

384

Net income attributable to partners / controlling interests

5,366

3,407

6,966

4,132

Net income attributable to preferred unitholder

1,033

367

2,066

367

Net income attributable to common unitholders

$

4,333

$

3,040

$

4,900

$

3,765

Net income per common limited partner unit:

Basic

$

0.36

$

0.25

$

0.41

$

0.32

Diluted

$

0.29

$

0.24

$

0.38

$

0.31

Weighted average common units outstanding:

Basic

12,053

11,933

12,012

11,916

Diluted

18,218

14,298

18,163

13,324

Reconciliation of Net Income to Adjusted EBITDA and Distributable Cash Flow